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Minutes for SB126 - Committee on Utilities

Short Title

Exemption from income tax for certain public utilities.

Minutes Content for Tue, Jan 28, 2020

Chairman Masterson noted that this was a re-hearing on SB126.

Staff Revisor gave an overview of SB126.  The Chairman asked if there were any questions.  No questions were asked.

PROPONENTS;

Jim Zakoura, spoke on behalf of Kansas Industrial Consumers Group and Kansans for Lower Electric Rates.  He said this bill would end the Kansas corporate income tax for investor-owned utilities, without negative impacts to the state budget, and benefit customers by reducing rates.  He stated that the solution is to simply end the state income tax for gas and electric utilities.  If the income tax is eliminated, utilities can't collect income taxes from customers, causing rates to decrease.  Last year, the Kansas Corporation Commission (KCC) estimated eliminating the Kansas income tax expense will save Westar and KCP&L customers $22.8 million and $8.6 million each, respectively.  When all other Kansas investor-owned utilities are included, the customer savings estimated by the KCC are about $40 million per year. (Attachment 1)

David Nickel, Consumer Counsel for the Citizens' Utility Ratepayer Board.  CURB supports SB126.  This bill is favorable to the residential and small commercial ratepayers that CURB represents.  He stated that low income ratepayers often struggle to meet their utility bills every month.  Savings resulting from an income tax exemption would help to lower the utility bills of these ratepayers in need of help due to high Kansas utility rates. (Attachment 2)

Jason P. Watkins, Wichita Regional Chamber of Commerce, stated that The Chamber supports this legislation because we believe it would aide efforts to make Kansas more business-friendly and more competitive with regards to utility rates.  The south-central region of Kansas is home to a large number of manufacturing firms.  The state's largest manufacturing companies are located in and around the Wichita area.  He then said that while we are fortunate to have these employers driving our economy, these firms have many choices as to where to locate and where to grow jobs.  (Attachment 3)

Chairman Masterson noted that there was two additional proponent testimonies that were written only:

     Jeff Glendening, State Director, Americans for Prosperity-Kansas  (Attachment 4)

     Randy E. Stookey, Senior Vice President of Government Affairs, Kansas Grain and Feed Association & Renew Kansas Association . (Attachment 5)

Chairman Masterson asked if there were questions.  Mr. Zakoura answered questions from several members. All questions were answered.

OPPONENTS:

Chuck Caisley, Sr. Vice President, Marketing & Public Affairs stated that Evergy remains concerned that passage of this bill would trigger a rate case.  He said we want the Committee to know two things.  First it would break our commitment to Kansans and the KCC to not ask for a change in rates for 5 years.  Secondly, there is no guarantee that if a rate case were initiated that the outcome would be a rate decrease for customers.  He then went on to say that they we aware there is an amendment that seeks to remedy the concern about a rate case being triggered by this legislation.  However, our opinion is that the language is not clear and concise enough to enable single-issue rate-making.  And there will need to be an appropriate period of amortization to refund Kansas income taxes collected from ratepayers and previously recorded in accumulated deferred income taxes (ADIT). (Attachment 6)

Davis Rooney, on behalf of Sunflower Electric Power Corporation and Southern Pioneer Electric Company stated that they oppose this bill as introduced.  However, if the amendment proposed by Kansas Industrial Consumers is adopted, our opposition would be removed.  If the intention of this legislation is to exempt electric utilities who are eligible to pay Kansas income tax from paying such tax, the current language does not accomplish this intent.  Most Kansas electric cooperatives are income tax exempt under Internal Revenue Code section 501(c)12.  For unique reasons, Sunflower and Southern Pioneer are not tax exempt. (Attachment 7)

Janet Buchanan, Kansas Gas Service stated that while the testimony in Exhibit I addresses the existing language contained in SB126,  it is her understanding that amendments may be proposed by the Kansas Industrial Consumers Group (KIC) to alleviate concerns raised by Kansas Gas Service and other conferees.  The KIC recently shared potential amendments to SB126 and this testimony addresses those proposals.  She said the Kansas Gas Service urges the Committee to add additional language to the amended section 1(b) requiring retail rate changes be made "in a manner approved by the state corporation commission and consistent with state and federal tax code."  Another concern related to Symmetry.  It is reasonable to amend the language of this bill to apply changes (increases or decreases) in the tax rate so that neither the customer nor the utility is unfairly disadvantaged by a change in the tax rate.  She  addressed concerns about timing.  They suggest that the 240 days allowed for processing a rate case is a more appropriate time frame to provide appropriate discover and due process for addressing tax changes. (Attachment 8)

Whitney Damron, Liberty Utilities provided testimony saying currently, tax liabilities for a utility are a portion of what is considered by the KCC in setting rates.  Any change in federal, state or local tax rates should not be considered in isolation as it is simply not appropriate to view taxes in a snapshot calculation, given all of the factors that are involved with the assessment of a tax liability for a utility (e.g, deferred income taxes, depreciation, net operating loss carry forward, normalization, etc.)  He also stated that the bill repeals its state income tax on utilities but is silent as to what happens with Accumulated Deferred Income Taxes (ADIT) that are on the books of some if not all utilities. (Attachment 9)

Tom Stevens, Black Hills Energy stated Black Hills Energy is not opposed to the exemption of certain utilities from the Kansas state income tax within Section 2(d) of the bill as such tax exemption helps to reduce bills for our customers. We continue to believe Section 1 of the legislation is unnecessary because the Kansas Corporation Commission already possesses and has recently acted within its authority and jurisdiction to address changes in federal or state corporate income tax rates and the impact on utility rates.  He also addressed the time frame for implementing changes to retail rates.  He stated that the 30-day time frame is to short and that a 90-day time frame is more reasonable.  (Attachment 10)

Chairman Masterson asked the committee if they had questions.  Several Committee members had questions.  Mr. Caisley and Mr. Rooney answered questions.  Mr. Caisley was asked a question about current credit rating.  He stated he would get that information and provide it to the committee.

NEUTRAL:

Justin Grady, Kansas Corporation Commission spoke about the Staff's concerns.  Staff's first concern with Section l of SB126 is that this language is asymmetric, in that it only required a tracking of over collection of income taxes, not under collection of income taxes.  The second concern with Section l of SB126 is the requirement that a utility change its rates within 30-days of a change in tax law.  He stated that Staff is not taking a position on the provisions of SB126 that pertain to exempting utilities from paying State income taxes.  (Attachment 11)

Mr. Grady answered questions from the Committee members.

Next meeting will be February 4, 2020

The meeting adjourned at 2:31pm